Postal Service has vision of providing banks for underserved consumers

Published: Monday, July 21, 2014 at 1:00 a.m.

Last Modified: Sunday, July 20, 2014 at 9:32 p.m.

Millions of Americans have no bank account, and many more use costly services like payday lenders and check-cashing stores for their financial needs. Unlikely as it may seem, the U.S. Postal Service thinks it can help.

In a report released this year, the Office of the Inspector General at the USPS suggested it could deliver some basic financial services to un-banked and under-served consumers -- a move that also could help resuscitate the financially strapped agency.

The USPS, which already sells domestic and international money orders, envisions offering prepaid debit cards, mobile transactions, money transfers and even small loans.

The proposal comes as banks are closing branches in Southwest Florida and across the country, cutting expenses by shedding brick-and-mortar locations and steering customers to electronic services like online and mobile banking.

"The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector," the report said. "It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings.

"The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks' offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the under-served."

Not surprisingly, bankers have not jumped on the bandwagon. Camden R. Fine, chief executive of the Independent Community Bankers of America, called it "the worst idea since the Ford Edsel."

They question why an agency like the USPS, already awash in red ink and facing an uncertain future, should be eager to expand into the banking business.

"We're deeply concerned about the possible creation of a new GSE (government-sponsored enterprise) engaged in banking services, but not subject to the same level of regulation," said Kenneth Clayton, chief counsel at the American Bankers Association.

"This new entity could be perceived by many as a government-endorsed and preferred provider of financial products. The impact on banks -- particularly community banks -- would be substantial," he said.

Some have compared the USPS proposal to Walmart's bid for a banking charter, which the giant retailer abandoned in 2007 amid widespread criticism from bankers, lawmakers and some consumer advocates.

But the post office has one key advantage -- locations in every ZIP code in the country.

"Their real estate is probably underutilized," said Tramm Hudson, a longtime and now retired Sarasota banker. "The No. 1 reason people choose a bank is for convenience, and the post office is usually pretty convenient.

"With the advances in electronic banking, I could see self-service ATMs being used to accept deposits and dispense cash, a debit card or pre-paid card being used for bill paying and purchases and some other consumer financial services," he added.

The postal service has lost money for seven consecutive years, however, and some question if it could handle the complexity of financial services.

"They are struggling to do their main job well, and have been eclipsed by FedEx, Internet mail and the like," Hudson said. "Banks have a hard time serving, and making a profit on, this un-banked market segment, and I question if the postal service could do it at a profit."

Ken Thomas, a Miami-based economist and expert on bank branching, proposed a "shared branch" concept years ago to bring banking services to under-served communities, but he said the idea went nowhere.

"You cannot serve the un- or under-banked without some physical presence in local neighborhoods, something banks have generally not done," Thomas said. "Yes, bankers get spooked anytime new or unknown competitors want to get into banking, and these 'Barbarians at the Gate of Banking' are usually turned away because of the very strong banking lobby."

Some consumers, though, appear to support the idea of the USPS delivering basic banking and financial services.

A HuffPost/YouGov poll conducted this year found 44 percent of Americans said they favored the idea of the post office offering bill pay, check cashing and small loans, while 37 percent were opposed. Nineteen percent said they were not sure.

A STRONG NEED

An estimated 34 million American households are considered financially under-served, according to a Federal Deposit Insurance Corp. report.

Those 68 million adults live without bank accounts, or with just a basic checking account, and do not qualify for traditional forms of credit, which forces them to use costly services like payday loans or car title loans.

Those under-served households, with an average annual income of $25,500, spend about $2,400 a year on alternative financial services and fees, a KPMG study found. In 2012, they paid a combined $89 billion in fees and interest, the Center for Financial Services Innovation stated.

FEWER BANK OFFICES

Meanwhile, as consumers conduct more of their banking on computers or mobile devices, the industry's physical footprint has continued to shrink, even in growth states such as Florida.

Since 2010, U.S. banks have closed 9,481 branches while opening 5,330, a net loss of 4,151. Many of them are in poor neighbors or rural areas, making it more difficult for those who live there to find banking services.

Florida reported a net loss of 319 offices in the past four years, the most of any state and 20 percent more than second-place Georgia, according to a study by SNL Financial.

The number of bank offices in the Sarasota-Manatee region dropped from 201 to 182 over the past four years, a 10 percent decline.

By comparison, the USPS has more than 35,000 offices, stations and branches that could deliver financial services. Nearly 60 percent of those offices are in ZIP codes with one or no bank branches.

But the postal service has problems. It has struggled to survive as consumers have increasingly turned to email and other shipping alternatives.

It reported a net loss of $5 billion in fiscal 2013, the seventh straight year it was unprofitable. The price of a first-class stamp rose 3 cents, to 49 cents, in late January, the largest price hike in more than a decade. Even with that hike, the flow of red ink is expected to continue.

Locally, cost-cutting has placed the Manasota Processing and Distribution Center, near the Sarasota-Manatee line, back on a list of facilities to be closed.

Some 300 employees will be affected by job losses or transfers, according to union estimates. Mail sorted at that center will be processed in Fort Myers and Tampa.

The post office says if it was able to capture 10 percent of the $89 billion spent by consumers on alternative financial services -- in line with other countries, where postal systems offer those products -- that $8.9 billion would more than offset its net loss.

But bankers like Hudson believe that line of business should be left to the private sector.

"They need to focus on their primary mission," he said. "Perhaps the better course is to leverage the post office locations and contract with banks to offer banking services in their locations. Putting ATMs and other electronic delivery devices may be something worth talking about. Otherwise, it is wishful thinking."

<p>Millions of Americans have no bank account, and many more use costly services like payday lenders and check-cashing stores for their financial needs. Unlikely as it may seem, the U.S. Postal Service thinks it can help.</p><p>In a report released this year, the Office of the Inspector General at the USPS suggested it could deliver some basic financial services to un-banked and under-served consumers -- a move that also could help resuscitate the financially strapped agency.</p><p>The USPS, which already sells domestic and international money orders, envisions offering prepaid debit cards, mobile transactions, money transfers and even small loans.</p><p>The proposal comes as banks are closing branches in Southwest Florida and across the country, cutting expenses by shedding brick-and-mortar locations and steering customers to electronic services like online and mobile banking.</p><p>"The Postal Service is well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector," the report said. "It could accomplish this largely by partnering with banks, who also could lend expertise as the Postal Service structures new offerings.</p><p>"The Office of Inspector General is not suggesting that the Postal Service become a bank or openly compete with banks. To the contrary, we are suggesting that the Postal Service could greatly complement banks' offerings. The Postal Service could help financial institutions fill the gaps in their efforts to reach the under-served."</p><p>Not surprisingly, bankers have not jumped on the bandwagon. Camden R. Fine, chief executive of the Independent Community Bankers of America, called it "the worst idea since the Ford Edsel."</p><p>They question why an agency like the USPS, already awash in red ink and facing an uncertain future, should be eager to expand into the banking business.</p><p>"We're deeply concerned about the possible creation of a new GSE (government-sponsored enterprise) engaged in banking services, but not subject to the same level of regulation," said Kenneth Clayton, chief counsel at the American Bankers Association.</p><p>"This new entity could be perceived by many as a government-endorsed and preferred provider of financial products. The impact on banks -- particularly community banks -- would be substantial," he said.</p><p>Some have compared the USPS proposal to Walmart's bid for a banking charter, which the giant retailer abandoned in 2007 amid widespread criticism from bankers, lawmakers and some consumer advocates.</p><p>But the post office has one key advantage -- locations in every ZIP code in the country.</p><p>"Their real estate is probably underutilized," said Tramm Hudson, a longtime and now retired Sarasota banker. "The No. 1 reason people choose a bank is for convenience, and the post office is usually pretty convenient.</p><p>"With the advances in electronic banking, I could see self-service ATMs being used to accept deposits and dispense cash, a debit card or pre-paid card being used for bill paying and purchases and some other consumer financial services," he added.</p><p>The postal service has lost money for seven consecutive years, however, and some question if it could handle the complexity of financial services.</p><p>"They are struggling to do their main job well, and have been eclipsed by FedEx, Internet mail and the like," Hudson said. "Banks have a hard time serving, and making a profit on, this un-banked market segment, and I question if the postal service could do it at a profit."</p><p>Ken Thomas, a Miami-based economist and expert on bank branching, proposed a "shared branch" concept years ago to bring banking services to under-served communities, but he said the idea went nowhere.</p><p>"You cannot serve the un- or under-banked without some physical presence in local neighborhoods, something banks have generally not done," Thomas said. "Yes, bankers get spooked anytime new or unknown competitors want to get into banking, and these 'Barbarians at the Gate of Banking' are usually turned away because of the very strong banking lobby."</p><p>Some consumers, though, appear to support the idea of the USPS delivering basic banking and financial services.</p><p>A HuffPost/YouGov poll conducted this year found 44 percent of Americans said they favored the idea of the post office offering bill pay, check cashing and small loans, while 37 percent were opposed. Nineteen percent said they were not sure.</p><p>A STRONG NEED</p><p>An estimated 34 million American households are considered financially under-served, according to a Federal Deposit Insurance Corp. report.</p><p>Those 68 million adults live without bank accounts, or with just a basic checking account, and do not qualify for traditional forms of credit, which forces them to use costly services like payday loans or car title loans.</p><p>Those under-served households, with an average annual income of $25,500, spend about $2,400 a year on alternative financial services and fees, a KPMG study found. In 2012, they paid a combined $89 billion in fees and interest, the Center for Financial Services Innovation stated.</p><p>FEWER BANK OFFICES</p><p>Meanwhile, as consumers conduct more of their banking on computers or mobile devices, the industry's physical footprint has continued to shrink, even in growth states such as Florida.</p><p>Since 2010, U.S. banks have closed 9,481 branches while opening 5,330, a net loss of 4,151. Many of them are in poor neighbors or rural areas, making it more difficult for those who live there to find banking services.</p><p>Florida reported a net loss of 319 offices in the past four years, the most of any state and 20 percent more than second-place Georgia, according to a study by SNL Financial.</p><p>The number of bank offices in the Sarasota-Manatee region dropped from 201 to 182 over the past four years, a 10 percent decline.</p><p>By comparison, the USPS has more than 35,000 offices, stations and branches that could deliver financial services. Nearly 60 percent of those offices are in ZIP codes with one or no bank branches.</p><p>But the postal service has problems. It has struggled to survive as consumers have increasingly turned to email and other shipping alternatives.</p><p>It reported a net loss of $5 billion in fiscal 2013, the seventh straight year it was unprofitable. The price of a first-class stamp rose 3 cents, to 49 cents, in late January, the largest price hike in more than a decade. Even with that hike, the flow of red ink is expected to continue.</p><p>Locally, cost-cutting has placed the Manasota Processing and Distribution Center, near the Sarasota-Manatee line, back on a list of facilities to be closed.</p><p>Some 300 employees will be affected by job losses or transfers, according to union estimates. Mail sorted at that center will be processed in Fort Myers and Tampa.</p><p>The post office says if it was able to capture 10 percent of the $89 billion spent by consumers on alternative financial services -- in line with other countries, where postal systems offer those products -- that $8.9 billion would more than offset its net loss.</p><p>But bankers like Hudson believe that line of business should be left to the private sector.</p><p>"They need to focus on their primary mission," he said. "Perhaps the better course is to leverage the post office locations and contract with banks to offer banking services in their locations. Putting ATMs and other electronic delivery devices may be something worth talking about. Otherwise, it is wishful thinking."</p>